TSX: TGL & NASDAQ: TGA

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1 TRANSGLOBE ENERGY CORPORATION ANNOUNCES FIRST QUARTER 2010 FINANCIAL AND OPERATING RESULTS TSX: TGL & NASDAQ: TGA Calgary, Alberta, May 6, TransGlobe Energy Corporation ( TransGlobe or the Company ) is pleased to announce its financial and operating results for the three month period ended March 31, All dollar values are expressed in United States dollars unless otherwise stated. The conversion to barrels of oil equivalent ( Boe ) of natural gas to oil is made on the basis of six thousand cubic feet of natural gas being equivalent to one barrel ( Bbl ) of crude oil. HIGHLIGHTS Record first quarter production averaged 9,694 Bopd, a 12% increase over fourth quarter 2009; First quarter funds flow of $19.1 million ($0.29/share), a 97% increase over fourth quarter 2009; First quarter net income of $11.6 million ($0.17/share), a 361% increase over fourth quarter 2009; New exploration project (East Ghazalat) added in Arab Republic of Egypt s ( Egypt ) prolific Western Desert; Oil tested on second East Ghazalat exploration well (Safwa #1); follow-up well (Safwa NW #1) approved by partners; Successful West Gharib fracture stimulation program at Arta (four wells frac d), 800 Bopd of new production from Nukhul formation in April; and Increased budget and guidance for 2010 powered by new production and improved oil price differentials at West Gharib and Arta success. Corporate Summary The Company made excellent progress during the first quarter of Production, funds flow from operations and net income all increased significantly over the previous quarter. The West Gharib project area continues to be a star performer in the Company s portfolio and is expected to remain the focus for continued production and reserves growth. The Republic of Yemen ( Yemen ) drilling program during the second half of 2010 is anticipated to also provide low risk, development gains and very significant exploration tests. A new exploration project was added in the Western Desert area of Egypt and a new oil discovery was found in only the second well is expected to be the Company s most active drilling year. A conference call to discuss TransGlobe s first quarter results presented in this report will be held on Thursday, May 6, 2010 at 2:30 p.m. Mountain Time (4:30 p.m. Eastern Time) and is accessible to all interested parties by dialing or toll-free (see also TransGlobe s news release dated April 29, 2010). Online, the webcast may be accessed at Investor Presentation Rodman & Renshaw TransGlobe also announces that Mr. Ross G. Clarkson, President and Chief Executive Officer, will make a presentation on the Company s activities at the Rodman & Renshaw Annual Global Investment Conference in London, England on Monday, May 17, 2010 at 7:00 a.m. Mountain Time (9:00 a.m. Eastern Time). Investors may register directly for the live webcast at: The link to the webcast will also be available on TransGlobe s Web site at Annual General and Special Meeting of the Shareholders Tuesday, May 11, 2010 at 3:00 p.m. Mountain Time Calgary Petroleum Club th Avenue S.W., Calgary, Alberta, Canada 1

2 FINANCIAL AND OPERATING RESULTS (US$000s, except per share, price, volume amounts and % change) March 31 Financial % Change Oil revenue 61,651 28, Oil revenue, net of royalties and other 37,404 19, Derivative loss on commodity contracts (22) (200) 89 Operating expense 5,787 5, General and administrative expense 3,385 2, Depletion, depreciation and accretion expense 7,343 12,017 (39) Income taxes 8,620 3, Funds flow from operations* 19,073 8, Basic per share Diluted per share Net income (loss) 11,598 (4,954) 334 Basic per share 0.18 (0.08) Diluted per share 0.17 (0.08) Capital expenditures 13,447 8, Long-term debt, including current portion 49,888 57,347 (13) Common shares outstanding Basic (weighted-average) 65,432 61,710 6 Diluted (weighted-average) 66,908 61,710 8 Total assets 248, ,145 4 * Funds flow from operations is a non-gaap measure that represents cash generated from operating activities before changes in non-cash working capital. Operating Average production volumes (Bopd) 9,694 8, Average price ($ per Bbl) Operating expense ($ per Bbl) OPERATIONS UPDATE ARAB REPUBLIC OF EGYPT West Gharib, Arab Republic of Egypt (100% working interest, TransGlobe operated) Operations and Exploration Four oil wells were drilled during the first quarter at Hana #20, Hana #21, North Hoshia #2 and Hoshia #8. Subsequent to quarter-end, Hana #22 was drilled and completed as an oil well. The Hana #20 well was drilled on the south end of the Hana field to a total depth of 5,505 feet. The well was completed as a Kareem oil well and is currently producing 400 Bopd. The North Hoshia #2 well was drilled to a total depth of 5,430 feet, targeting the Nukhul and Thebes formations in the North Hoshia pool. The well was completed as a Nukhul oil well in early March. The Nukhul is producing a limited amount of oil and stimulation options are being evaluated. The Hoshia #8 step-out appraisal well was drilled to a total depth of 3,920 feet and cased as a multi-zone (Rudeis/Nukhul) oil well. The well was completed in the Nukhul formation and is producing 80 Bopd. Hoshia #8 will be evaluated for a potential fracture stimulation treatment similar the recent work on the Arta field. The Hana #21 well, located at the northern end of the Hana field, was drilled to a total depth of 6,558 feet and was completed as a Kareem producer at an initial rate of 200 Bopd in early April. The Hana #22 well was drilled at the south end of the Hana field (offset to Hana #20) to a total depth of 5,503 feet. The well was placed on production as a Kareem oil well at an initial rate of 150 Bopd in mid-april. The Arta #13 well was drilled as a western extension to the Arta Nukhul pool. The well will be cased and completed as a Nukhul oil well. Following Arta #13, the drilling rig will move to East Arta #2 to test an eastern extension to the Arta pool. The contract for the existing 1,000 HP drilling rig has been extended 12 months (at lower drilling rates) through July 2011 to facilitate continuous drilling on the Nukhul project which is primarily focused on the northern development leases (Arta, East Arta, North Hoshia and South Rahmi). A second drilling rig (1,500 HP) has been contracted to focus on exploration/appraisal projects in the southern development leases (Hana, Hoshia, West Hoshia and Fadl) which are typically deeper tests. The new rig is currently moving to the Hana West #9 location and is expected to commence drilling in mid-may. Hana West #9 is an appraisal well targeting the Lower Rudeis, Kareem and Shagar oil zones found in Hana West #8. The Hana West #8 Lower Rudeis production has stabilized in the 350 Bopd range. During the first quarter, the Company successfully fracture stimulated ( frac d ) the Nukhul formation in Arta #9 during February, followed by three additional fracture stimulations ( frac s ) in mid-march at Arta #2, #4 and #8. The wells have been placed on production and the early production rates indicate they will stabilize in the Bopd range per well which represents a more than tenfold increase over the pre-frac rates. Total Arta field production has increased from an average of 130 Bopd in January 2010 to approximately 900 Bopd in April. 2

3 The next frac program includes a four-staged frac in the Arta #12 horizontal well (drilled in Q4-2009) followed by a frac at Arta #6 and Arta #13. The Arta #12 frac will be the first multi-stage, horizontal well fracture stimulation in Egypt. This program is scheduled for late May, subject to the arrival of specialty equipment from Canada. The Hoshia, North Hoshia and South Rahmy fields are also being evaluated for potential Nukhul development drilling and fracture stimulations. Production Production from West Gharib averaged 6,848 Bopd to TransGlobe during the first quarter, an 18% (1,033 Bopd) increase from the previous quarter. Production averaged 6,577 Bopd to TransGlobe during April. Following a number of pump changes in April, production has increased to approximately 7,400 Bopd during the first week of May. Quarterly West Gharib Production (Bopd) Q-1 Q-4 Q-3 Q-2 Gross production rate 6,848 5,815 5,747 6,384 TransGlobe working interest 6,848 5,815 5,747 6,384 TransGlobe net (after royalties) 4,250 3,775 3,732 4,132 TransGlobe net (after royalties and tax)* 3,222 2,951 2,918 3,234 * Under the terms of the West Gharib Production Sharing Concession, royalties and taxes are paid out of the government s share of production sharing oil. East Ghazalat Block, Arab Republic of Egypt (50% working interest) On January 25, 2010, TransGlobe announced the signing of a farm-out agreement with Vegas Oil & Gas SA ( Vegas ) to earn a 50% interest in the East Ghazalat Concession in the Western Desert of Egypt, subject to the approval of the Egyptian Government. The East Ghazalat Concession is operated by Vegas, a privately owned oil and gas company with extensive Egypt experience and success. The 858 km 2 East Ghazalat Concession is located in the prolific Abu Gharadiq basin of Egypt s Western Desert, approximately 250 km west of Cairo. East Ghazalat was awarded to Vegas on June 5, 2007 and is currently in the first, three-year exploration period. There are two additional exploration period extensions of two years each. TransGlobe has committed to pay 100% of three exploration wells to a maximum of $9.0 million to earn a 50% working interest in the East Ghazalat Concession. To date, the operator has acquired 450 km of 3-D seismic to complement the existing 1,548 km of 2-D seismic and 218 km of 3-D seismic. Operations and Exploration Drilling commenced on the first of three planned exploration wells on January 14, The first exploration well Gawad #1 was drilled to total depth of 9,418 feet and subsequently abandoned. The second exploration well Safwa #1 was drilled to a total depth of 5,700 feet cased as a potential oil well. An oil-bearing interval in the Cretaceous section of the Safwa #1 well was logged and oil samples were recovered during wireline testing. The well was perforated and tested at a rate of 300 Bopd of 38 o API oil utilizing the drilling rig. The short-term test confirmed the presence of a good reservoir and movable oil. The third exploration well, Sahab #1, was drilled to a total depth of 8,638 feet and subsequently abandoned in late April. Pursuant to the terms of the farm-out agreement, the Company has met the three well earning commitment at an estimated total drilling cost of approximately $6.0 million (100% to TransGlobe). The Company will pay its 50% share of future costs at East Ghazalat. The partners have approved a fourth well to appraise the Safwa oil test. The Safwa NW #1 which is located approximately 2.5 km north/northwest of Safwa #1 is currently drilling. The Safwa NW #1 well is targeting the Cretaceous formation which tested oil in Safwa #1. Nuqra Block 1, Arab Republic of Egypt (71.43% working interest, TransGlobe operated) Operations and Exploration TransGlobe has identified several prospects for drilling in late 2010 which are similar to the Al Baraka field located immediately west of the Nuqra Concession. The operator of the Al Baraka field recently announced a test of 1,300 Bopd from Al Baraka #4 well, representing a significant improvement from the previously reported production rates of 200 Bopd/well. The Company continues to discuss rig-sharing possibilities with the adjacent operators to facilitate a late 2010 drilling program. YEMEN EAST- Masila Basin Block 32, Republic of Yemen (13.81% working interest) Operations and Exploration No wells were drilled during the first quarter. The joint venture partners have approved two development wells for the Godah pool in Production Production from Block 32 averaged 4,948 Bopd (683 Bopd to TransGlobe) during the quarter, representing a 4% decrease from the previous quarter primarily due to natural declines. Production averaged approximately 4,559 Bopd (630 Bopd to TransGlobe) during April. 3

4 Quarterly Block 32 Production (Bopd) Q-1 Q-4 Q-3 Q-2 Gross production rate 4,948 5,174 5,501 6,188 TransGlobe working interest TransGlobe net (after royalties) TransGlobe net (after royalties and tax)* * Under the terms of the Block 32 PSA, royalties and taxes are paid out of the government s share of production sharing oil. Block 72, Republic of Yemen (33% working interest) Operations and Exploration The Block 72 joint venture partnership entered the second, 30-month exploration period in January 2009 which carries a commitment of one exploration well. The Block 72 joint venture partnership has entered into a letter of intent to farm-out a portion of their interests in Block 72 to a third party, subject to a formal farm-in agreement and approval by the Ministry of Oil and Minerals. The farm-out will allow the Company to allocate more of its 2010 budget to projects in Egypt. The exploration well planned for the second half of 2010 is targeting a fractured basement prospect on the northern portion of Block 72. Block 84, Republic of Yemen (33% working interest) Operations and Exploration The Block 84 joint venture partners have elected to terminate the Block 84 Production Sharing Agreement ( PSA ) ratification process. TransGlobe will reallocate the Block 84 budget funds into its Egyptian projects. YEMEN WEST- Marib Basin Block S-1, Republic of Yemen (25% working interest) Operations and Exploration The Block S-1 and Block 75 joint venture partnerships approved a 2010 budget to drill up to eight horizontal development wells on Block S-1 and one exploration well on Block 75. Subsequent to year-end, the partners added a Block S-1 exploration well to the 2010 program. Drilling is expected to start during May or early June and extend into the 2011 budget year. Production Production from Block S-1 averaged 8,652 Bopd (2,163 Bopd to TransGlobe) during the quarter, essentially flat with the previous quarter. Production averaged approximately 7,991 Bopd (1,998 Bopd to TransGlobe) during April. Quarterly Block S-1 Production (Bopd) Q1 Q-4 Q-3 Q-2 Gross field production rate 8,652 8,504 9,428 9,520 TransGlobe working interest 2,163 2,126 2,357 2,380 TransGlobe net (after royalties) 1, ,254 1,230 TransGlobe net (after royalties and tax)* * Under the terms of the Block S-1 PSA royalties and taxes are paid out of the government s share of production sharing oil. Block 75, Republic of Yemen (25% working interest) Operations and Exploration The PSA for Block 75 was ratified and signed into law effective March 8, The Block 75 3-D seismic acquisition program was completed in August and processed by year-end The new 3-D is currently being interpreted and mapped. One exploration well is planned for 2010 as part of the Block S-1/75 drilling program. The Block 75 exploration well is currently scheduled for the fourth quarter of

5 MANAGEMENT S DISCUSSION AND ANALYSIS May 6, 2010 Management s discussion and analysis ( MD&A ) should be read in conjunction with the unaudited interim financial statements for the three months ended March 31, 2010 and 2009 and the audited financial statements and MD&A for the year ended December 31, 2009 included in the Company s annual report. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in Canada in the currency of the United States (except where otherwise noted). Additional information relating to the Company, including the Company s Annual Information Form, is on SEDAR at The Company s annual report and Form 40-F may be found on EDGAR at READER ADVISORIES Forward-Looking Statements This MD&A may include certain statements that may be deemed to be forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of Such statements relate to possible future events. All statements other than statements of historical fact may be forward-looking statements. Forward-looking statements are often, but not always, identified by the use of words such as seek, anticipate, plan, continue, estimate, expect, may, will, project, predict, potential, targeting, intend, could, might, should, believe and similar expressions. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. Although TransGlobe s forward-looking statements are based on the beliefs, expectations, opinions and assumptions of the Company s management on the date the statements are made, such statements are inherently uncertain and provide no guarantee of future performance. Actual results may differ materially from TransGlobe s expectations as reflected in such forward-looking statements as a result of various factors, many of which are beyond the control of the Company. These factors include, but are not limited to, unforeseen changes in the rate of production from TransGlobe s oil and gas properties, changes in price of crude oil and natural gas, adverse technical factors associated with exploration, development, production or transportation of TransGlobe s crude oil and natural gas reserves, changes or disruptions in the political or fiscal regimes in TransGlobe s areas of activity, changes in tax, energy or other laws or regulations, changes in significant capital expenditures, delays or disruptions in production due to shortages of skilled manpower, equipment or materials, economic fluctuations, and other factors beyond the Company s control. TransGlobe does not assume any obligation to update forward-looking statements, other than as required by law, if circumstances or management s beliefs, expectations or opinions should change and investors should not attribute undue certainty to, or place undue reliance on, any forward-looking statements. Please consult TransGlobe s public filings at and for further, more detailed information concerning these matters. Use of Barrel of Oil Equivalents The calculation of barrels of oil equivalent ( Boe ) is based on a conversion rate of six thousand cubic feet of natural gas ( Mcf ) to one barrel ( Bbl ) of crude oil. Boe s may be misleading, particularly if used in isolation. A Boe conversion ratio of 6 Mcf:1 Bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Non-GAAP Measures Funds Flow from Operations This document contains the term funds flow from operations, which should not be considered an alternative to or more meaningful than cash flow from operating activities as determined in accordance with Generally Accepted Accounting Principles ( GAAP ). Funds flow from operations is a non-gaap measure that represents cash generated from operating activities before changes in non-cash working capital. Management considers this a key measure as it demonstrates TransGlobe s ability to generate the cash flow necessary to fund future growth through capital investment. Funds flow from operations may not be comparable to similar measures used by other companies. Reconciliation of Funds Flow from Operations ($000s) March 31, 2010 March 31, 2009 Cash flow from operating activities 4,254 7,889 Changes in non-cash working capital 14, Funds flow from operations 19,073 8,641 Debt-to-funds flow ratio Debt-to-funds flow is a non-gaap measure that is used to set the amount of capital in proportion to risk. The Company s debt-tofunds flow ratio is computed as long-term debt, including the current portion, over funds flow from operations for the trailing twelve months. Debt-to-funds flow may not be comparable to similar measures used by other companies. Netback Netback is a non-gaap measure that represents sales net of royalties (all government interests, net of income taxes), operating expenses and current taxes. Management believes that netback is a useful supplemental measure to analyze operating performance and provide an indication of the results generated by the Company s principal business activities prior to the consideration of other income and expenses. Netback may not be comparable to similar measures used by other companies. 5

6 TRANSGLOBE S BUSINESS TransGlobe is a Canadian-based, publicly traded, oil exploration and production company whose activities are concentrated in two main geographic areas, the Arab Republic of Egypt ( Egypt ) and the Republic of Yemen ( Yemen ). Egypt and Yemen include the Company s exploration, development and production of crude oil. TransGlobe disposed of its Canadian oil and gas operations in 2008 to reposition itself as a 100% oil, Middle East/North Africa growth company. SELECTED QUARTERLY FINANCIAL INFORMATION ($000s, except per share, price and volume amounts) Q-1 Q-4 Q-3 Q-2 Q-1 Q-4 Q-3 Q-2 Operations Average sales volumes (Boepd) 9,694 8,656 8,864 9,619 8,788 6,893 6,935 7,706 Average price ($/Boe) Oil and gas sales 61,651 50,044 46,818 42,557 28,379 29,285 66,707 77,283 Oil and gas sales, net of royalties and other 37,404 28,788 28,495 26,462 19,060 18,272 36,577 41,629 Cash flow from operating activities 4,254 12,594 1,264 15,052 7,889 11,252 20,652 9,573 Funds flow from operations* 19,073 9,703 12,603 14,117 8,641 6,134 16,775 18,485 Funds flow from operations per share - Basic Diluted Net income (loss) 11,598 2,516 (1,618) (4,361) (4,954) 7,640 24,790 (5,365) Net income (loss) per share - Basic (0.02) (0.07) (0.08) (0.09) - Diluted (0.02) (0.07) (0.08) (0.09) Total assets 248, , , , , , , ,535 Cash and cash equivalents 18,845 16,177 14,804 23,952 22,041 7,634 8,593 11,673 Total long-term debt, including current portion 49,888 49,799 52,686 52,551 57,347 57,230 57,127 42,197 Debt-to-funds flow ratio** * Funds flow from operations is a non-gaap measure that represents cash generated from operating activities before changes in non-cash working capital. ** Debt-to-funds flow ratio is a non-gaap measure that represents total current and long-term debt over funds flow from operations for the trailing 12 months. During the first quarter of 2010, TransGlobe has: Maintained a strong financial position, reporting a debt-to-funds flow ratio of 0.9 at March 31, 2010 (March 31, ); Funded capital programs entirely with funds flow from operations; Increased production in Q by 10% to 9,694 Bopd compared with Q production of 8,788 Bopd; Reported a 121% increase in funds flow from operations due to a 97% increase in commodity prices along with a 10% increase in sales volumes compared to Q1-2009; and Reported net income in Q of $11.6 million (Q $4.9 million net loss) mainly due to higher commodity prices and higher production rates in the quarter compared with the same period in 2009, along with lower depletion and depreciation expense in Egypt. 6

7 2010 VARIANCES $000s $ Per Share Diluted % Variance Q net loss (4,954) (0.08) Cash items Volume variance 5, Price variance 27, Royalties (14,927) (0.22) (301) Expenses: Operating (581) (0.01) (12) Realized derivative loss (1,136) (0.02) (23) Cash general and administrative (982) (0.01) (20) Current income taxes (5,446) (0.08) (110) Realized foreign exchange gain Interest on long-term debt Total cash items variance 10, Non-cash items Unrealized derivative gain 1, Depletion and depreciation 4, Stock-based compensation Amortization of deferred financing costs Total non-cash items variance 6, Q net income 11, Net income increased by $16.6 million in Q compared to a loss of $5.0 million in Q due in part to a significant increase in commodity prices and production volumes along with a decrease in depletion and depreciation, which was partially offset by higher royalties and income taxes. BUSINESS ENVIRONMENT The Company s financial results are significantly influenced by fluctuations in commodity prices, including price differentials. The following table shows select market benchmark prices and foreign exchange rates: Q-1 Q-4 Q-3 Q-2 Q-1 Dated Brent average oil price ($/Bbl) U.S./Canadian Dollar average exchange rate The price of Dated Brent oil averaged $76.10/Bbl in Q1-2010, an increase of 71% from the Q price of $44.40/Bbl. We are currently in a period of economic recovery with improved liquidity and access to capital, in addition to strengthening oil prices. TransGlobe s management believes the Company is well positioned to take advantage of the improving economy due to its increasing production, manageable debt levels, positive cash generation from operations and the availability of cash and cash equivalents. The Company designed its 2010 budget to be flexible, allowing spending to be adjusted as commodity prices change and forecasts are reviewed. OPERATING RESULTS AND NETBACK Daily Volumes, Working Interest Before Royalties and Other (Bopd) March 31, 2010 March 31, 2009 % Change Egypt - Oil sales 6,848 5, Yemen - Oil sales 2,846 3,424 (17) Total Company - daily sales volumes 9,694 8,

8 Netback Consolidated March 31, 2010 March 31, 2009 (000s, except per Bbl amounts) $ $/Bbl $ $/Bbl Oil sales 61, , Royalties and other 24, , Current taxes 8, , Operating expenses 5, , Netback 22, , Egypt March 31, 2010 March 31, 2009 (000s, except per Bbl amounts) $ $/Bbl $ $/Bbl Oil sales 42, , Royalties and other 15, , Current taxes 6, , Operating expenses 3, , Netback 16, , The netback per Bbl in Egypt increased 151% in the three months ended March 31, 2010, compared with the same period of 2009, mainly as a result of oil prices increasing by 114% and production volumes increasing by 27%. During the three months ended March 31, 2010, the average realized oil price for the West Gharib crude had a gravity/quality adjustment of approximately $7.90/Bbl (10%) to the average Dated Brent oil price versus a $12.51/Bbl (28%) differential in the first quarter of Royalties and taxes as a percentage of revenue increased to 53% in the three months ended March 31, 2010, compared with 49% in the same period of Royalty and tax rates fluctuate in Egypt due to changes in the cost oil whereby the PSC allows for recovery of operating and capital costs through a reduction in government take. Operating expenses for the three months ended March 31, 2010 remained relatively consistent with the same period in 2009, increasing 2% to $5.91/Bbl ( $5.77/Bbl). Yemen March 31, 2010 March 31, 2009 (000s, except per Bbl amounts) $ $/Bbl $ $/Bbl Oil sales 19, , Royalties and other 8, , Current taxes 2, Operating expenses 2, , Netback 6, , In Yemen, the netback per Bbl increased 46% in the three months ended March 31, 2010, compared with the same period in These increases are primarily a result of oil prices increasing by 82% partially offset by higher royalty and tax rates. Royalties and taxes as a percentage of revenue increased to 54% in Q compared with 38% in Q Royalty and tax rates fluctuate in Yemen due to changes in the amount of cost sharing oil, whereby the Block 32 and Block S-1 Production Sharing Agreements ( PSAs ) allow for the recovery of operating and capital costs through a reduction in Ministry of Oil and Minerals take of oil production. Operating expenses on a per Bbl basis for the three months ended March 31, 2010 increased 7% to $8.37/Bbl ( $7.85/Bbl) which is mostly due to declining production. DERIVATIVE COMMODITY CONTRACTS TransGlobe uses hedging arrangements as part of its risk management strategy to manage commodity price fluctuations and stabilize cash flows for future exploration and development programs. The hedging program was expanded in Q to protect the cash flows from the added risk of commodity price exposure and in order to comply with the covenants set forth by the Company s lending institutions. The estimated fair value of unrealized commodity contracts is reported on the Consolidated Balance Sheets, with any change in the unrealized positions recorded to income. The fair values of these transactions are based on an approximation of the amounts that would have been paid to, or received from, counter-parties to settle the transactions outstanding as at the Consolidated Balance Sheet date with reference to forward prices and market values provided by independent sources. The actual amounts realized may differ from these estimates. 8

9 In Q1-2010, the realized loss on commodity contracts relates to the purchase of a new financial floor derivative commodity contract for $0.4 million, compared with $0.8 million in realized gains for the same period in 2009 as a result of depressed oil prices in the first quarter of last year. The mark-to-market valuation of TransGlobe s future derivative commodity contracts decreased from a $0.5 million liability at December 31, 2009 to a $0.2 million liability at March 31, 2010, thus resulting in a $0.3 million unrealized gain on future derivative commodity contracts being recorded in the period. ($000s) March 31, 2010 March 31, 2009 Realized cash (loss) gain on commodity contracts* (365) 771 Unrealized gain (loss) on commodity contracts** 343 (971) Total derivative gain (loss) on commodity contracts (22) (200) * Realized cash gain (loss) represents actual cash settlements or receipts under the respective contracts. ** The unrealized loss on derivative commodity contracts represents the change in fair value of the contracts during the period. If the Dated Brent oil price remains at the level experienced at the end of Q1-2010, the derivative liability will be realized over the next year. However, a 10% decrease in Dated Brent oil prices would result in a $0.5 million decrease in the derivative commodity contract liability, thus increasing the unrealized gain by the same amount. Conversely, a 10% increase in Dated Brent oil prices would decrease the unrealized gain on commodity contracts by $0.7 million. The following commodity contracts are outstanding at March 31, 2010: Period Volume Type Dated Brent Pricing Put-Call Crude Oil April 1, 2010-August 31, ,000 Bbls/month Financial Collar $60.00-$84.25 April 1, 2010-August 31, ,000 Bbls/month Financial Collar $40.00-$80.00 April 1, 2010-December 31, ,000 Bbls/month Financial Floor $60.00 April 1, 2010-December 31, ,000 Bbls/month Financial Floor $65.00 The total volumes hedged for the balance of 2010 and the following years are: Nine months Bbls 375,000 - Bopd 1,364 - At March 31, 2010, all of the derivative commodity contracts were classified as current liabilities. GENERAL AND ADMINISTRATIVE EXPENSES ( G&A ) March 31, 2010 March 31, 2009 (000s, except per Bbl amounts) $ $/Bbl $ $/Bbl G&A (gross) 3, , Stock-based compensation Capitalized G&A (433) (0.50) (877) (1.11) Overhead recoveries (5) (0.01) (6) (0.01) G&A (net) 3, , G&A expenses (net) increased 35% (22% on a per Bbl basis) in the first three months of 2010 compared with the same period in 2009 mostly due to a strengthening Canadian dollar which accounted for approximately 60% of the increase as the majority of TransGlobe s G&A costs are incurred in Canadian dollars. The remainder of the increase was due to increased insurance, staffing and reduced general and administrative capitalization. INTEREST ON LONG-TERM DEBT Interest expense for the three months ended March 31, 2010 decreased to $0.5 million ( $0.6 million). Interest expense includes interest on long-term debt and amortization of transaction costs associated with long-term debt. In the quarter, the Company expensed $0.1 million of transaction costs ( $0.1 million). The Company had $49.9 million of debt outstanding at March 31, 2010 (March 31, $58.0 million). The long-term debt bears interest at the Eurodollar rate plus three percent. DEPLETION AND DEPRECIATION ( DD&A ) March 31, 2010 March 31, 2009 (000s, except per Bbl amounts) $ $/Bbl $ $/Bbl Egypt 5, , Yemen 2, , Corporate , ,

10 In Egypt, DD&A decreased 56% on a per Bbl basis for the three months ended March 31, 2010 due to significant increases to Proved reserves at year-end In Yemen, DD&A decreased 3% on a per Bbl basis for the three months ended March 31, 2010 due to reserve additions at yearend In Egypt, unproven properties of $12.2 million ( $10.0 million) relating to Nuqra ($7.9 million), West Gharib ($1.8 million) and East Ghazalat ($2.5 million) were excluded from the costs subject to DD&A in the quarter. In Yemen, unproven property costs of $11.7 million ( $7.5 million) relating to Block 72 and Block 75 were excluded from the costs, subject to DD&A in the quarter. CAPITAL EXPENDITURES ($000s) March 31, 2010 March 31, 2009 Egypt 12,714 7,309 Yemen 679 1,545 Corporate Total 13,447 8,926 In Egypt, total capital expenditures in the first three months of 2010 were $12.7 million ( $7.3 million). The Company drilled six wells, resulting in two oil wells at Hana, one oil well at Hoshia, and one oil well at North Hoshia in West Gharib, in addition to one oil well and one dry hole at East Ghazalat. In Yemen, total capital expenditures in Q were $0.7 million ( $1.5 million). The Company did not drill any wells in Yemen in Q OUTSTANDING SHARE DATA As at March 31, 2010, the Company had 65,446,639 common shares issued and outstanding. The Company has received regulatory approval to purchase, from time-to-time, as it considers advisable, up to 6,116,905 common shares under a Normal Course Issuer Bid which commenced September 7, 2009 and will terminate September 6, During the three months ended March 31, 2010 and during the year ended December 31, 2009, the Company did not repurchase any common shares. LIQUIDITY AND CAPITAL RESOURCES Liquidity describes a company s ability to access cash. Companies operating in the upstream oil and gas industry require sufficient cash in order to fund capital programs necessary to maintain and increase production and reserves, to acquire strategic oil and gas assets and to repay debt. TransGlobe s capital programs are funded principally by cash provided from operating activities. A key measure that TransGlobe uses to measure the Company s overall financial strength is debt-to-funds flow from operating activities (calculated on a 12-month trailing basis). TransGlobe s debt-to-funds flow from operating activities ratio, a key shortterm leverage measure, remained strong at 0.9 times at March 31, This was within the Company s target range of no more than 2.0 times. The following table illustrates TransGlobe s sources and uses of cash during the periods ended March 31, 2010 and 2009: Sources and Uses of Cash ($000s) March 31, 2010 March 31, 2009 Cash sourced Funds flow from operations* 19,073 8,641 Exercise of options Issuance of common shares, net of share issuance costs - 15,146 19,203 23,867 Cash used Capital expenditures 13,447 8,926 13,447 8,926 Net cash from operations 5,756 14,941 Changes in non-cash working capital (3,088) (534) Increase in cash and cash equivalents 2,668 14,407 Cash and cash equivalents beginning of period 16,177 7,634 Cash and cash equivalents end of period 18,845 22,041 * Funds flow from operations is a non-gaap measure that represents cash generated from operating activities before changes in non-cash working capital. Funding for the Company s capital expenditures was provided by funds flow from operations. The Company expects to fund its approved 2010 exploration and development program of $63.0 million ($49.6 million remaining) and contractual commitments through the use of working capital and cash generated by operating activities. The use of new financing during 2010 may also be utilized to finance new opportunities. Fluctuations in commodity prices, product demand, foreign exchange rates, interest rates and various other risks may impact capital resources. 10

11 Working capital is the amount by which current assets exceed current liabilities. At March 31, 2010, the Company had a working capital deficiency of $5.8 million (December 31, 2009 deficiency of $11.8 million). The working capital deficiency at the end of Q is primarily the result of the reclassification of long-term debt as a current liability. Increases to working capital in 2010 are mainly the result of cash and cash equivalents increasing due to the collection of certain accounts receivable, and increased accounts receivable due to higher oil prices and higher sales volumes. These receivables are not considered to be impaired; however, to mitigate this risk, the Company has entered into an insurance program on a portion of the receivable balance. At March 31, 2010, TransGlobe had a $60.0 million Revolving Credit Agreement of which $50.0 million was drawn. Amounts drawn under the Revolving Credit Agreement are due September 25, The Company is in discussion on a new bank line and expects to enter into a new facility in the second quarter of ($000s) March 31, 2010 December 31, 2009 Revolving Credit Agreement 50,000 50,000 Unamortized transaction costs (112) (201) 49,888 49,799 Current portion of long-term debt (net of unamortized transaction costs) 49,888 49,799 Long-term debt - - COMMITMENTS AND CONTINGENCIES As part of its normal business, the Company entered into arrangements and incurred obligations that will impact the Company s future operations and liquidity. The principal commitments of the Company are as follows: ($000s) Payment Due by Period 1,2 Recognized in Financial Statements Contractual Cash Flows Less than 1 year 1-3 years 4-5 years Accounts payable and accrued liabilities Yes-Liability 22,583 22, Long-term debt: Revolving Credit Agreement Yes-Liability 50,000 50, Derivative commodity contracts Yes-Liability Office and equipment leases No 1, Minimum work commitments 3 No 9,781 4,828 4, Total 83,887 78,168 5,719 - More than 5 years Payments exclude ongoing operating costs related to certain leases, interest on long-term debt and payments made to settle derivatives. Payments denominated in foreign currencies have been translated at March 31, 2010 exchange rates. Minimum work commitments include contracts awarded for capital projects and those commitments related to exploration and drilling obligations. TransGlobe has entered into a farm-out agreement and has committed to pay 100% of three exploration wells to a maximum of $9.0 million to earn a 50% working interest in the East Ghazalat Concession in the Western Desert of Egypt, subject to the approval of the Egyptian Government. The Company has completed drilling two of the three exploration wells during this quarter and the third exploration well was drilled in April Pursuant to the Concession agreement for Nuqra Block 1 in Egypt, the Contractor (Joint Venture Partners) has a minimum financial commitment of $5.0 million ($4.4 million to TransGlobe) and a work commitment for two exploration wells in the second exploration extension. The second, 36-month extension period commenced on July 18, The Contractor has met the second extension financial commitment of $5.0 million in the prior periods. At the request of the Government, the Company provided a $4.0 million production guarantee from the West Gharib Concession prior to entering the second extension period. Pursuant to the PSA for Block 72 in Yemen, the Contractor (Joint Venture Partners) has a minimum financial commitment of $2.0 million ($0.7 million to TransGlobe) to drill one exploration well during the second exploration period. The second, 30-month exploration period commenced on January 12, Pursuant to the PSA for Block 75 in Yemen, the Contractor (Joint Venture Partners) has a remaining minimum financial commitment of $3.0 million ($0.8 million to TransGlobe) for one exploration well. The first, 36-month exploration period commenced March 8, The Company issued a $1.5 million letter of credit (expiring November 15, 2011) to guarantee the Company s performance under the first exploration period. The letter is secured by a guarantee granted by Export Development Canada. Pursuant to the August 18, 2008 asset purchase agreement for a 25% financial interest in eight development leases on the West Gharib Concession in Egypt, the Company has committed to paying the vendor a success fee to a maximum of $7.0 million if incremental reserve thresholds are reached in the East Hoshia (up to $5.0 million) and South Rahmi (up to $2.0 million) development leases, to be evaluated annually. As at December 31, 2009, no additional fees are due in In the normal course of its operations, the Company may be subject to litigations and claims. Although it is not possible to estimate the extent of potential costs, if any, management believes that the ultimate resolution of such contingencies would not have a material adverse impact on the results of operations, financial position or liquidity of the Company. 11

12 MANAGEMENT STRATEGY AND OUTLOOK FOR 2010 The 2010 outlook provides information as to management s expectation for results of operations for Readers are cautioned that the 2010 outlook may not be appropriate for other purposes. The Company s expected results are sensitive to fluctuations in the business environment and may vary accordingly. This outlook contains forward-looking statements that should be read in conjunction with the Company s disclosure under Forward-Looking Statements, outlined on the first page of this MD&A Outlook Highlights Production is expected to average between 10,000 and 10,500 Bopd (mid-point: 10,250), a 14% increase over the 2009 average production; Exploration and development spending is budgeted to be $63.0 million, a 77% increase from 2009 (allocated 77% to Egypt and 23% to Yemen) funded from funds flow from operations and cash on hand; and Using the mid-point of production expectations and an average oil price assumption for the remainder of the year of $65.00/Bbl, funds flow from operations is expected to be $70.0 million for the year Production Outlook TransGlobe s production guidance for 2010 is expected to average between 10,000 and 10,500 Bopd, representing a 14% increase over the 2009 average production of 8,980 Bopd. This target includes increased production from Hana, Hana West, Hoshia, Arta and East Arta in Egypt, and production from the development drilling program on Block S-1 in Yemen. Production from Egypt is expected to average approximately 7,550 Bopd during 2010, with the balance of approximately 2,700 Bopd coming from the Yemen properties. Production Forecast 2010 Guidance 2009 Actual % Change* Barrels of oil per day 10,000 10,500 8, * % growth based on mid-point of outlook Funds Flow From Operations Outlook This outlook was developed using the above production forecast and an average Dated Brent oil price of $65.00/Bbl for the remainder of the year Funds Flow From Operations Outlook ($ million, except % change) 2010 Guidance 2009 Actual % Change* Funds flow from operations** * % growth based on mid-point of outlook. ** Funds flow from operations is a non-gaap measure that represents cash generated from operating activities before changes in non-cash working capital. Due in part to higher expected prices and higher production, funds flow from operations is expected to increase by 55% in One of the key factors in the increased funds flow in 2010 is due to a better expected oil price differential to average Dated Brent benchmark price in Egypt. In 2009, the Company had been experiencing Egypt price differentials to average Dated Brent in the 24% range, while in 2010 these differentials have narrowed to the 10% range. Variations in production and commodity prices during 2010 could significantly change this outlook. An increase in the Dated Brent oil price of $10.00/Bbl for the remainder of the year would increase anticipated funds flow by approximately $8.0 million for the year, while a $10.00/Bbl decrease in the Dated Brent oil price would result in anticipated funds flow decreasing by approximately $6.0 million Capital Budget March 31, 2010 ($ million) Actual 2010 Annual Budget Egypt Yemen Corporate Total The 2010 capital program is split 68:32 between development and exploration, respectively. The Company plans to participate in 37 wells in It is anticipated the Company will fund its entire 2010 capital budget from funds flow and working capital. The Company has designed its 2010 budget to be flexible, allowing spending to be adjusted as commodity prices change and forecasts are reviewed. 12

13 CHANGES IN ACCOUNTING POLICIES New Accounting Policies The Company adopted a share appreciation rights plan in March Under the share appreciation rights plan, all liabilities must be settled in cash and, consequently, are classified as liability instruments and measured at their intrinsic value less any unvested portion. Unvested share appreciation rights accrue evenly over the vesting period. The intrinsic value is determined as the difference between the market value of the Company s common shares and the exercise price of the share appreciation rights. This obligation is revalued each reporting period and the change in the obligation is recognized as stock-based compensation expense (recovery). New Accounting Standards a) Business Combinations In December 2008, the CICA issued Section 1582, Business Combinations, which will replace CICA Section 1581 of the same name. Section 1582 establishes principles and requirements of the acquisition method for business combinations and related disclosures. This statement applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after January 2011 with earlier application permitted. The Company is currently evaluating the impact of this change on its Consolidated Financial Statements. b) Non-Controlling Interests In December 2008, the CICA issued Sections 1601, Consolidated Financial Statements, and 1602, Non-Controlling Interests. Section 1601 establishes standards for the preparation of consolidated financial statements. Section 1602 provides guidance on accounting for a non-controlling interest in a subsidiary in consolidated financial statements subsequent to a business combination. These standards are effective on or after the beginning of the first annual reporting period beginning on or after January 2011 with earlier application permitted. These standards currently do not impact the Company as it has full controlling interest of all of its subsidiaries. c) International Financial Reporting Standards ( IFRS ) On February 13, 2008 the Canadian Accounting Standards Board has confirmed that effective for interim and annual financial statements related to fiscal years beginning on or after January 1, 2011, IFRS will replace Canada s current GAAP for all publicly accountable profit-oriented enterprises. The Company commenced its IFRS transition project in 2008 and has completed the project awareness and engagement phase of the IFRS transition project. Corporate governance over the project has been established and a steering committee and project team have been formed. The steering committee is comprised of members of management and executive and is responsible for final approval of project recommendations and deliverables to the Audit Committee and Board of Directors. Communication, training and education are an important aspect of the Company s IFRS conversion project. Internal and external training and education sessions have been carried out and will continue throughout each phase of the project. The Company has completed the diagnostic assessment phase by performing comparisons of the differences between Canadian GAAP and IFRS and is currently assessing the effects of adoption and finalizing its conversion plan. The Company has determined that the most significant impact of IFRS conversion is to property and equipment. IFRS does not prescribe specific oil and gas accounting guidance other than for costs associated with the exploration and evaluation phase. The Company currently follows full cost accounting as prescribed in Accounting Guideline 16, Oil and Gas Accounting Full Cost. Conversion to IFRS may have a significant impact on how the Company accounts for costs pertaining to oil and gas activities, in particular those related to the preexploration and development phases. In addition, the level at which impairment tests are performed and the impairment testing methodology will differ under IFRS. IFRS conversion will also result in other impacts, some of which may be significant in nature. The Company continues to focus on analyzing and developing implementation strategies and processes for the key IFRS transition issues identified. Where applicable, key IFRS transition alternatives are being considered and evaluated. The Company continues to perform preliminary accounting assessments on less critical IFRS transition issues and has commenced analysis of IFRS financial statement presentation and disclosure requirements. These assessments will need to be further analyzed and evaluated throughout the implementation phase of the Company s project. At this time, the impact on the Company s financial position and results of operations is not reliably determinable or estimable. In July 2009, the International Accounting Standards Board ( IASB ) approved additional exemptions that will allow entities to allocate their oil and gas asset balance as determined under full cost accounting to the IFRS categories of exploration and evaluation assets and development and producing properties. Under the exemption, exploration and evaluation assets are measured at the amount determined under an entity s previous GAAP. For assets in the development or production phases, the amount is also measured at the amount determined under an entity s previous GAAP; however, such values must be allocated to the underlying IFRS transitional assets on a pro-rata basis using either reserve values or reserve volumes as of the entity s IFRS transition date. This exemption will relieve entities from significant adjustments resulting from retrospective adoption of IFRS. The Company intends to utilize this exemption. The Company is also evaluating other first-time adoption exemptions and elections available upon initial transition that provide relief from retrospective application of IFRS. Concurrently, the project team is working on the design, planning and solution development phase. In this phase, the focus is on determining the specific qualitative and quantitative impact the application of IFRS requirement has on the Company. The project team members continue to work with representatives from the various operational areas to develop recommendations including first-time adoption exemptions available upon initial transition to IFRS. The results from the consultations with the various operational areas are used to draft accounting policies. One of the sections in each of the draft accounting policies is the disclosure section which includes the financial statements disclosure as required by IFRS. First-time adoption exemptions were analyzed by the project team and a schedule is being drafted for the steering committee to review and evaluate the exemptions. A detailed implementation plan and timeline has been developed, which also includes the development of a training plan. Additionally, the Company is monitoring the IASB s active projects and all changes to IFRS prior to January 1, 2011 and will be incorporated as required. 13